Sri Lanka hikes tax rates to maximise government revenues

Sri Lanka's inflation rose to 39.1% in May, its statistics office said on Tuesday - a record level, compared to the previous high of 29.8% set in April.

Sri Lanka's cash-strapped government on Tuesday announced a taxation overhaul to boost revenue amid the country's crippling economic crisis, hiking value added taxes and corporate income tax, and slashing the relief given to individual taxpayers.

Prime Minister Ranil Wickremesinghe, who took office this month and plans to present an interim budget within weeks, said measures were necessary as the current state of government finances was unsustainable.

"The implementation of a strong fiscal consolidation plan is imperative through revenue enhancement as well as expenditure rationalization measures in 2022," Mr. Wickremesinghe's office said in a statement.

Sri Lanka's inflation rose to 39.1% in May, its statistics office said on Tuesday - a record level, compared to the previous high of 29.8% set in April.

An increase in Value Added Tax (VAT) to 12% from 8% with immediate effect is among the key tax increases announced on Tuesday, which is expected to boost government revenues by 65 billion Sri Lankan rupees ($180.56 million).

Other measures, including increasing corporate income tax to 30% from 24% from October, will earn an additional 52 billion rupees for the exchequer.

Withholding tax on employment income has been made mandatory and exemptions for individual taxpayers have been reduced, the statement said.